Others are complaining about the lacklustre Employment Situation Report from the Bureau of Labor Statistics so I may as well join in the fun. The report is all too familiar: roughly 80,000 net jobs were created last month, far too slow for any genuine recovery, with the most jobs being gained in professional and business services, particularly temps, manufacturing, and healthcare. Even these numbers are small enough to make no meaningful difference in the overall picture.
The merry band of commenters at OTB are responding pretty much as you might expect, jeering at “conservatives and libertarians” to propose their own solutions to the problem, pointing to the decline in public sector employment, and suggesting fiscal stimulus. I’m neither a conservative nor a libertarian but I’m happy to weigh in with my own views.
At least around here the reason that state and local governments are trimming payrolls is that their employment contracts require them to do so. Revenues are stubbornly low despite increases in tax rates, the only choices for increasing cash on hand are drumming up more revenues or borrowing and as their credit ratings fall borrowing is becoming more expensive for them, and, failing that, they must cut payrolls. Employment contracts do not allow them to reduce wages or benefits so they must reduce the number of employees. Why isn’t more ire being directed at “sticky wages”, inadequate flexibility?
What’s the proposed alternative? Federal aid? That’s only temporary first aid and, as I’ve pointed out before, lots of the workers in question are in the top decile of income earners rather than the lowest. That’s not nearly as sympathetic a case in my eyes.
Something I think that people proposing measures to spur consumer spending fail to take into account: there’s nothing in the General Theory that says that additional consumer spending in Manchester inevitably produces more economic growth in Manchester. The stimulus might well take place in London, Bristol, or Glasgow.
Stimulating consumer spending in the United States is as likely to produce increased growth in China, Japan, Mexico, or Canada as it is here. Probably more so.
Consumer spending and government spending are not the only kinds of consumption. Until relatively recently our economy was much more dependent on business spending than it is now. Unfortunately, more business spending, unless it’s targeted over here won’t produce more job growth over here, either.
What we really need is more new business formation. New jobs are created by new businesses. They’re certainly not created by large, established businesses who’ve been trimming their payrolls with tedious regularity over the period of the last 30 years. The number of hourly employees of GM, Ford, and Chrysler are a fraction of what they were 30 years ago. That’s a trend that we should not expect to change.
So, let’s brainstorm about the kinds of steps that might increase the rate of new business formation. Here’s one: a national healthcare insurance system paid from general revenues rather than from a tax on employers (and employees). A tax on employment will increase the cost of new employees and reduce the amount of money available for capital investment, discouraging new business formation.
Things that reduce the cost of starting a business, doing business, or adding employees.
How about some other suggestions?